Residential Landlords Take Notice

Leaseholders of Foundling Court and O’Donnell Court v The Mayor and Burgesses of the London Borough of Camden [2016]

The Upper Tribunal (Lands Chamber) has clarified that superior landlords of residential premises must consult with both their tenants and subtenants prior to carrying out qualifying works or entering into long term agreements. The responsibility now clearly falls on the freeholder/head landlord to consult with all tenants (including individual subtenants) or risk the imposition of a cost cap – £250 per leaseholder for qualifying works, £100 per leaseholder for long term qualifying agreements for failing to properly consult.

Section 20 of the Landlord and Tenant Act 1985 and 2003 Regulations require the “landlord” to give notice in writing to “each tenant” of its intention to enter into a long term agreement for the provision of services or to carry out qualifying works. The issue of general importance in this case was whether the statutory obligation to consult the individual leaseholders was an obligation imposed on the superior landlord (who had the intention to carry out the works) or the intermediate landlord (who was entitled to pass the costs on to its subtenants).

This case related to properties forming part of the Brunswick Centre in London, a complex of shops, offices and hundreds of residential flats. The freeholder at the relevant time was Allied London (A) (although it later sold its interest), which carried out major works in 2005. The London Borough of Camden (C) was (and remains) the headlessee of the residential flats, from which a number of long and short leases were carved. C was liable to pay a service charge to A under its headlease, and the subtenants were required to contribute certain costs through a service charge to C.

Prior to carrying out the major works, A consulted with C, but not the individual lessees. Whilst C wrote to each of the leaseholders enclosing a copy of A’s consultation notices, C’s notices did not fully comply with the time limits set down in the LTA 1985. The major works were carried out and C paid the service charges demanded by A under the headlease.

Some of the individual leaseholders made contributions to C, but when it became apparent that there were problems with the quality of the works, C told them that they need not pay the final account until those problems were resolved. The leaseholders made an application to the Upper Tribunal to determine the extent to which they were liable to contribute to the cost of the 2005 works and other remedial works. The question arose whether the consultation had been properly carried out.

The Upper Tribunal decided that the consultation had been defective. Although the freeholder had no direct relationship with the subtenants, it was under an obligation to consult them as well as C when they undertook the statutory procedure. Even though there was no direct relationship between the two, the Upper Tribunal took a common sense approach and construed the ambiguity in the statute to extend the consultation requirement to those who will ultimately be paying for the works further down the chain of ownership.

This decision could open the floodgates to a wave of claims from subtenants who are receiving demands for service charges or have paid service charges where the consultation exercise has not been properly carried out, ie if the head landlord carrying out the works has only consulted with the intermediate lessee.

In this case, the leaseholders were advised that, to the extent they are found to have paid more to C than they ought, they will be entitled to seek restitution of the balance. C also intends to seek restitution from the freeholder(s) of any sums which it has to repay to the leaseholders.

Head leaseholders will now shoulder a larger administrative burden in having to not only consult their immediate tenants but also their subtenants. If their details are not known to them, an additional step will need to be factored into the pre-consultation process in gathering all the necessary contact information. If the superior landlord does not hold or cannot obtain correct contact details for all relevant leaseholders, the Upper Tribunal has suggested that it will be good practice to send consultation notices addressed to “The Leaseholder” to every flat within a block as well as to the registered addresses of known tenants. The 1985 Act contains no service provisions and whilst a scattergun approach may not be guaranteed to come to the attention of every tenant, the landlord does not need to prove receipt. The downside is that persons who were not entitled to be consulted may submit observations.

Intermediary lessees should not rest on their laurels. Whilst intermediary lessees not carrying out works do not have to consult their subtenants individually, they will need to co-operate with their freeholders in providing details of any sub-tenancies.

For those landlords who have previously adopted the cautious approach this ruling should bring little change. Landlords who have not properly consulted their tenants / subtenants will need to assess the risks of leaseholders seeking restitution. The only way for landlords to proceed with certainty that they will recover their service charges (or not have to repay them in future) is for landlords to seek an order dispensing with the need to conduct the consultation procedure.